Is Short-Term Leasing a “Commercial Use”?

In Houston v. Wilson Mesa Ranch Homeowners Association, Inc., the Colorado Court of Appeals held that short-term rentals did not violate a covenant prohibiting commercial use of a unit. However, this ruling did not indicate that all restrictions on short-term rentals are unenforceable. Although this case was decided in Colorado, and it is not binding in Washington, it could be an indication of how a Washington court would decide a similar issue. This case involved a subdivision governed by the Wilson Mesa Ranch Homeowners Association, where Houston was a homeowner. Houston was renting his home for short-term vacations and using a website to advertise the property. The association’s board heard about what Houston was doing, and it adopted a rule prohibiting rentals for fewer than 30 days without prior board approval. The new rule included a $500 fine for each violation of the new rental restriction. Houston felt that the board was illegally trying to change the covenants by passing the rental restriction. The board argued that short-term rentals were a commercial use that was already prohibited by the covenants. The board denied Houston’s request to continue with the short-term rentals. Houston took two more reservations for rentals, and the board fined him $500 for each reservation. Houston filed a lawsuit seeking to have the court rule that the board could not prohibit short-term rentals based on the covenants’ commercial use restriction. The association also filed a lawsuit asking the court to declare that the covenants prohibited rentals fewer than 30 days, the leasing rule was enforceable, and Houston violated the covenants and rules by advertising and taking reservations for short-term rentals. The trial court found that the covenants contained no expressed or implied prohibition of short-term rentals, so the issue should be resolved in favor of the free use of the property. The court ruled in Houston’s favor, and the association appealed. The appeals court agreed with the trial court that there was no clear prohibition of short-term rentals in the covenants. Also, the appeals court ruled that short-term rental of the home did not make the use “commercial” when the rental was for residential use. The court added that the board could not pass a rule governing leases in this way; it must amend the covenants. We believe Washington courts have also ruled that you cannot prohibit rentals using an argument that renting (short or long-term) is a prohibited business or commercial use. We need to rely on other provisions within the governing documents to restrict VRBO, Airbnb and other short-term rentals.
Categories: Governing Documents